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United Kingdom Test case on Business Interruption Claims – SA High Court ruling cited

The Without Prejudice website recently published an article, written by Christine Rodrigues and Keryn Layton-Mccann of Bowmans, on the UK’s Financial Conduct Authority (FCA) efforts to obtain legal clarity on whether insurers are liable to pay out claims related to the Covid-19 outbreak.

“This test case, therefore, seeks to ascertain whether, without considering complex factual scenarios, and taking into consideration the principles of Treating Customers Fairly (TCF), these reasons for denying the BI claims are valid.”

“The FCA argues that the Defendants are wrong to reject policyholders’ claims and/or are wrong in the way in which they have addressed the causation of insured losses.”

“The FCA seeks declarations to establish the basis on which the insurance provided by such provisions under representative standard form policies, issued by the Defendants (Wordings) respond to non-damage BI losses.”

“The FCA states that where there remains genuine ambiguity about the proper construction of the policy, it must be resolved by applying a construction which favours the insured.”

“On the issue of causation, the FCA set out the ‘but for’ test and the proximate cause test. The FCA argues that the application of any causation principles must adapt to the apparent intention of the parties. The single proximate cause of the interruption is the disease everywhere and government and human responses to it.”

The Café Chameleon case is cited, which states that there was a clear nexus between the COVID-19 outbreak and the regulatory regime that caused the interruption to the insured’s business, so that causation was established.

Concerning the South African link, the article notes:

“What is clear from the FCA’s arguments is that the South African regulator, the Financial Sector Conduct Authority, in its communications, has taken a similar approach to that of the FCA.

“The courts have usually looked to foreign law to assist in their determinations, yet the FCA has, in this instance, relied on the South African judgment of Café Chameleon to aid in its argument. From a regulatory perspective, this illustrates that the South African insurance industry is considered an equivalent jurisdiction to that of the UK. This test case and Café Chameleon are going to test the principles of Treating Customers Fairly (TCF).”

Rodrigues is a Partner and Layton-McCann an Associate, Banking and Financial Services Regulatory Practice, Bowmans.

The Cape High Court case against Santam starts on Tuesday, and the UK test case judgment is expected towards the middle of September.

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